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Denmark’s Cutting-Edge Tax Evasion Detection Methods

In a bid to stay ahead of tax evaders, Denmark has been at the forefront of adopting artificial intelligence (AI) technology in its tax administration. The country’s use of machine-learning algorithms has been gaining attention globally, with two prominent cases in public view.

From Algorithms to Machine-Learning

As early as 2005, Denmark experimented with traditional algorithms to automatically collect taxes through the EFI system, a joint taxation platform. However, the project was shelved due to major flaws discovered in 2015. The country’s pension system also employed algorithms since 2001.

Denmark has now successfully implemented machine-learning algorithms in two key areas: fraud detection and real estate valuation.

Fraud Detection

The Udbetaling Denmark body, responsible for welfare benefits payments, uses AI-powered algorithms to identify citizens suspected of fraud based on undeclared risk factors. The algorithm operates by selecting taxpayers with predicted high risks of fraud or non-compliance for audit planning.

Functions Performed by AI Systems

  • External risk-management (risk-scoring)
  • Automated calculation/verification of tax information (automated decision-making)
  • Nudging (adapted language for taxpayers)

Real Estate Valuation

The Danish tax administration has also developed an AI-driven model that automatically values real estate using 19 variables, including proximity to facilities and pollution levels in the area.

Functions Performed by AI Systems

  • Automated calculation/verification of property value

Data Processed by AI Systems

  • The Udbetaling algorithm has access to a vast range of data.
  • The real estate valuation model relies on 19 variables.

Regulation

The use of these algorithms is regulated by specific laws in Denmark. The Law on Udbetaling Denmark governs the use of data by administrative bodies, including the possibility of linking and registry merger with other government agencies.

These innovative approaches have sparked interest globally, highlighting Denmark’s commitment to harnessing technology to combat tax evasion.